Following on yesterday's Chief Economist of Bank of China International—"Xu Gao's case for stimulus", which linked to parts I and II.
From Pekingnology, September 17:
The Chief Economist of Bank of China International urges Beijing to emerge from Friedrich Hayek’s shadow and listen to John Maynard Keynes.
Resistance to economic stimulus runs deep in China, often likened to drinking poison to quench thirst. Xu Gao, Chief Economist at Bank of China International Co. Ltd. and adjunct professor at the National School of Development (NSD) at Peking University, traces this sentiment, somewhat surprisingly, back to Friedrich Hayek.
Hayek, author of The Road to Serfdom and The Fatal Conceit: The Errors of Socialism, remains so influential that, according to Xu, even the economic policies of socialist, Communist Party-led China continue to be shaped by his theories. Xu argues that both expansionary stimulus and contractionary regulations are mere tools, and it’s time for China to emerge from Hayek’s shadow and take bold steps to stimulate its faltering economy.
What follows is Part III of Xu’s 10,000-character essay urging Beijing to take decisive action. Parts I and II have already been featured in The East is Read, our sister newsletter. Xu has graciously approved our translation for publication.
VI. Stimulating the Economy Is Not "Drinking Poisonous Liquor to Quench Thirst"
After thoroughly evaluating the logic behind stimulus measures, it is important to refute a common misconception that likens stimulus measures to "poisonous liquor" and suggests that stimulating the economy is akin to "drinking poisonous liquor to quench thirst." The underlying assumption is that while stimulus measures may provide short-term relief, they inevitably result in severe long-term consequences. However, the discussion in section IV of this essay on the sustainability of stimulus measures demonstrates the bias in this view. This misunderstanding will now be analyzed and refuted from a historical perspective.
Opposition to stimulus measures has long existed in the history of economics. Friedrich Hayek, the 1974 Nobel Prize laureate in Economics, wrote in Lecture 3, "The Working of the Price Mechanism in the Course of the Credit Cycle," in his Prices and Production and Other Works (2nd ed., 1935):
"If the proportion between the demand for consumers' goods and the demand for producers' goods as determined by the voluntary decisions of individuals is distorted by the creation of artificial demand, it must mean that part of the available resources is again led into a wrong direction and a definite and lasting adjustment is again postponed. And, even if the absorption of the unemployed resources were to be quickened in this way, it would only mean that the seed would already be sown for new disturbances and new crises. The only way permanently to "mobilize" all available resources is, therefore, not to use artificial stimulants—whether during a crisis or thereafter—but to leave it to time to effect a permanent cure...we may perhaps prevent a crisis by checking expansion in time, but that we can do nothing to get out of it before its natural end, once it has come."....
....MUCH MORE
Speaking of liquor and possibly also of interest:
The Intoxicating Power: Alcohol's Role in Chinese Governance and Strategies for Change
A Central Party School Professor Unveils the Dynamics of China's Official Drinking Culture and How Political Reform Changed it
That's at Fred Gao's Inside China substack, September 17.
